Difference between a Freight Forwarder and NVOCC

NVOCC and Freight Forwarder are two of the many terms that are used interchangeably within the shipping and freight industry.. It maybe so because many people don’t understand or acknowledge the difference between these two entities especially when it comes to documentation and liabilities..

So let us look at the difference between a freight forwarder and NVOCC in detail..

 

FMC defines NVOCC – Non-Vessel-Operating Common Carrier as:

  • a common carrier that holds itself out to the public to provide ocean transportation, issues its own house bill of lading or equivalent document, and does not operate the vessels by which ocean transportation is provided
  • a shipper in its relationship with the vessel-operating common carrier involved in the movement of cargo

As there is no global regulatory body to register, control or regulate NVOCCs around the world, it is difficult to see how many NVOCCs are currently in operation around the world or where they are based..

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It is widely believed that the US market has the largest number of NVOCC operators in the world.. USA may also be the one of the few countries where an NVOCC needs to be registered prior to offering services..

Before offering services in the US Trades, NVOCCs are required to follow certain protocols including

  • securing a licence from the FMC ;
  • submit proof of financial responsibility for the payment of any claims that may occur and ;
  • publish a tariff of charges that will be applied to their clients

NVOCC registration is also required in China as per certain publications which says that the operator must be registered with Ministry of Transportation.. But there doesn’t seem to be quite clear a definition on whether the NVOCC operator needs to register their bill of lading or not..

Similarly the requirement or need for registration of an NVOCC in other major jurisdictions is clear as mud.. If any of you know of any jurisdiction where the registration of a NVOCC is strictly followed, please comment..

What is the function of a NVOCC..??

A NVOCC is often termed as a “carrier to shippers” and “shipper to carriers”.. What does this mean..??

At the most basic level, a NVOCC enters into volume based ocean freight arrangements with the various shipping lines operating across the various trade lanes.. A NVOCC then creates their own tariff based on which they sell space on these liner services to their various clients..

A NVOCC’s client list may include

  • BCO – Beneficial Cargo Owner which is another term for Exporter or Importer
  • Freight Forwarder
  • Clearing Agent
  • Freight Broker

freight forwarder and nvocc - shipping and freight resource

Depending on certain jurisdictions and markets, NVOCC’s activities may include but not restricted to below :

  • concluding contracts of international carriage of goods with the shippers as carriers;
  • receiving cargo and delivering cargo as carriers;
  • issuing bills of lading (usually a House Bill of Lading) or other transport documents;
  • collecting freight and other service charges;
  • booking space and arranging shipping with mainline carriers;
  • paying port to port transportation freight or other transportation charges;
  • consolidation and deconsolidation of containers either using own CFS or 3rd party

As an example, you can look at Blue Anchor Line who are one of the top 25 NVOCCs in the world and ranked No.1 NVOCC in the world in 2017..

Blue Anchor Line will have various volume based space/rate arrangements with various carriers around the world, across various trade lanes.. So they may choose to use a carrier like MSC or Maersk or CMA-CGM to ship your goods..

You as a shipper may benefit from the volume based rates that Blue Anchor Line is able to negotiate with the carriers..

A NVOCC can and sometimes do own and operate their own or leased containers and depending on the various types of contracts, a NVOCC is accorded the status of a virtual “carrier” and in certain cases accepts all liabilities of a carrier..

In line with this, a NVOCC will have their own agent at Port of Load and Discharge to handle the requirements for the release of goods and containers to the clients..

Ok so who is a freight forwarder..??

FMC defines a Freight Forwarder as below :

An Ocean Freight Forwarder (OFF) is an individual or company located in the U.S. which:

  • arranges cargo movement to an international destination
  • dispatches shipments from the United States via common carriers and books or otherwise arranges space for those shipments on behalf of shippers
  • prepares and processes the documentation and performs related activities pertaining to those shipments

While this definition maybe specific to USA as described by the FMC, by and large this is the text book definition of a freight forwarder.. In terms of licencing, in the USA, an OFF follows the same process as an NVOCC..

When you are an exporter,shipper (yes these are different) or importer, invariably you will need an agent to look after your shipment, handle all your documentary and transport requirements..

There is no one simple and quick explanation as to who is a freight forwarder and what they do.. In the most succinct and layman terms, a Freight Forwarder is a multi-function agent/operator who undertakes to handle the movement of goods from point to point on behalf of the cargo owner..

 

So what does a freight forwarder actually do and how is that different from what a NVOCC does..??

The essence of freight forwarding is to ensure that the cargo is picked up from the seller and delivered to the buyer at the required place, at the right price and in the same condition that it is picked up from origin using the most suitable resources and routing possible..

As per the WTO, global trade in 2017 was worth USD.16/- trillion.. As per 2017 estimates by UNCTAD, out of the world seaborne trade of 10.7 billion tons, containerised shipments accounted for about 17.1% which is around 1830 million tons.. This was carried in around 148 million containers, covering 9535 billion ton miles.. Staggering isn’t it..??

If you are an importer, exporter or shipper (yes they are different) imagine having to go through the activities of arranging trade finance, documentation, negotiating freight contracts, monitoring the movement of the cargo, transportation, customs clearances, port inspections and all other activities by themselves for the above volume..

Daunting huh..!! That is where a Freight Forwarder comes in..

A well established and experienced freight forwarder is expected to have below capabilities (either owned or outsourced)

  • experienced in all modes of transportation – road, rail, air and sea
  • able to provide cost effective and efficient cargo shipping solutions based on the customer’s requirement
  • able to arrange storage for the cargo (usually all big forwarders have their own warehouses)
  • able to arrange the distribution or “forwarding” of the cargo as per the instructions of their client
  • have the capability to negotiate freight rates with a carrier – either NVOCC or Ocean carrier
  • able to book cargo with the shipping line as per the requirement of the client or under their own contract
  • process all relevant shipping documents such as certificates of origin, customs and port documentation, bills of lading and associated shipping/negotiating documentation (Eur1, Certificate of Origin, etc)
  • issue their own approved house bill of lading (HBL)
  • arrange transportation of the cargo from/to the customers premises and port
  • have thorough knowledge of over border cargo movement
  • able to arrange customs clearance

 

So, can just about anyone become a freight forwarder..??


Theoretically the answer seems to be YES, anyone can call themselves a freight forwarder.. 

I say this because there is no global regulation or licensing requirement for anyone wanting to become a freight forwarder compared to someone wanting to become a clearing agent or customs broker which incidentally is different from being a freight forwarder.

As long as one is able to fulfill above duties and the client is satisfied with their credentials, anyone can term themselves a Freight Forwarder..

A forwarder will however need to register with the Local city/revenue authorities, Tax authorities etc as per local regulations for the purposes of issuing an invoice and conducting a forwarding business legally..

As per my knowledge USA with its OTI licensing and China with its Class A,B,C,D forwarder licensing, requires a freight forwarder to be licensed before commencing forwarding operations.. (If anyone knows of any other countries where you are required to be licensed to operate as a freight forwarder, please do share..)

A forwarder may also need to be registered with local customs and port authorities in order for them to file their own manifest, release their delivery orders or issue their bills of lading.. Some forwarders also belong to international groups/federations of freight forwarders although that is also not mandatory unless use want to use a freight forwarders bill of lading..

While the big boys in freight forwarding may have their own infrastructure and facilities to handle the functions of a freight forwarder, there are scores of freight forwarders who don’t have their own infrastructure and facilities and outsource most of their activities..

freight forwarder and nvocc - shipping and freight resource

They carry out all or most of the above mentioned activities as a 3PL Logistics provider whose definition includes freight forwarders, courier companies, companies offering logistics and transportation services on a sub-contracted basis..

The term freight forwarder however, is being used quite loosely nowadays and a lot of the companies/people entering the logistics field term themselves a freight forwarder for lack of better understanding of their operation and what to call themselves..

In their own interest and to ensure the prompt handling of their cargo, a customer (importer or exporter) must do their due diligence when appointing a freight forwarder and follow the necessary precautions and safeguards especially if they are importing for the first time or exporting for the first time..

Also be aware that a freight forwarder is different from a clearing agent, a NVOCC (as seen above) and a freight broker..

 

Finally,

As you can see above, there are some commonalities between a NVOCC and Freight Forwarder and in some cases depending on the activities handled, the dividing line could be a blur.. Both of them could be competing in the shipping industry against each other..

One of the main differences between a NVOCC and Freight Forwarder is that a customer (whether exporter or importer) “appoints” a freight forwarder to “act as their agent” whereas they “employ the services” of a NVOCC as one of their “service providers (not as agent)” in this case, as a carrier, same as they would a shipping line..

All said and done, a NVOCC and a Freight Forwarder both have their place in the industry, both take care of customers in their own rights, both need each other to be strong and most importantly,  both perform critical functions to keep the propellers of global trade spinning..

 

PS : This post has been updated and republished from its original version in 2010.. 


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49 thoughts on “Difference between a Freight Forwarder and NVOCC”

  1. I congratulate you on your ongoing patience and the difficulty you face in giving a clear answer to complex definitions when in fact they do vary in the detail – it has been interesting to reread this blog and the questions you have received

    Regards
    Jeff

  2. Hi Everyone my name is Paul, spent almost 40 years in Shipping & Logistics.

    I am in search for 40 years to understand the difference between NVOCC and Freight Forwarder. I couldn’t see any difference in their services, both acts on behalf of the shipper and issue a “Transport Document” (legally valid or not, is a question). You name it BL, HBL, MBL, CTD, etc… IN Indian context, after the Multi-modal Transport of Goods Act, AS PER LAW, all export cargo booked and carried by more than one mode transport has to be under a MTD, issued by an MTO, who is registered under the MTG Act, with the Director General of Shipping, Govt. of India. If you are not registered and carrying a cargo by more than one mode of transport it is illegal. So all major shipping companies like Maersk, MSC etc. are registered as MTOs in India, so as they can carry cargo from ICDs, CFSs. A MTO issue a MTD as a Principal or an agent of Principal and not as an agent of Shipper. His liability is not as per any international conventions, but is as per the MTG Act. There is variance in the liability. So for any shipper to ship cargo it is better for him to entrust the cargo to an MTO, if it is not a PORT CY to CY cargo. All international carriers write on the back of their BLs that their liability is as per Hamburg Rule or Haugue-Visby rules or lately Rotterdam rules. So read the BL back page (actually that is the Page 1 of 2) to ensure.

    After all this if any one can give me a clear difference between NVOCC and Freight Forwarder, I will appreciate it. My full form of NVOCC is Non-Vessel operating Container Carrier. This means a forwarder who owns container and move the same on a main line vessel or common carrier vessel.If this is accepted again there is a big difference in responsibilities and liabilities. Evey one arrange carriage from EXW to DDU. So who is who?

  3. Hi Hariesh,

    Sorry but I think the article lack substance in regard to the legal differences between NVOCC’s and Freight Forwarders (if there is any) if we apply a global perspective to the article.

    You are mentioning yourself that only USA and China have clear legal diffrentiation between the two terms. So what about the rest of the world where most container traffic are covenered by the Hague-Visby Rules? Do NVOCC’s and Freight Forwarders have different obligations / rights in respect to these rules?

    Can you give specific examples, e.g. cases of general salvage, etc, where a shipper will have different rights/obligations towards a NVOCC versus a Freight Forwarder?

    I am ready to learn but for me the difference between NVOCC and Freight Forwarder is solely a question of USA/China definitions. Just look at Kuehne + Nagel / Blue Anchor Line. I am not aware of differences in their service set up and/or obligations, except that Blue Anchor Line HBL is used to/from USA while K+N HBL is used in the rest of the world. The shipper in e.g. Germany do not even have to enter 2 contracts to get service to both USA and Argentina.

    Hope you can elaborate?

    • Hans, the legal differences between NVOCC and Freight Forwarders are many and would depend on jurisdiction, where and how the company has been incorporated and structured..

      So what about the rest of the world where most container traffic are covenered by the Hague-Visby Rules? Do NVOCC’s and Freight Forwarders have different obligations / rights in respect to these rules?” – yes, this would depend on which rules the NVOCC or Freight Forwarder decides to implement on their bill of lading.. FMC or any other authority does NOT dictate to a shipping line or NVOCC or Freight Forwarder on which rules or terms and conditions they should follow.. So in that sense these entities are free to follow their own path in terms of what obligations/liabilities they want to accept/handle..

      What is your contention on this question about difference between NVOCC and Freight Forwarder..?? Is there a difference or no difference..??

    • As mentioned I am very open to input and ready to change my perspective; however, my experience is that when looking at e.g. Europe to Africa trade then there is no difference between ‘NVOCC’ and ‘Freight Forwarder’. I would actually dare the claim that the term NVOCC is not used (contrary to US trades).

      But again, if you can elaborate on sepcific circumstances where a shipper will be worse of dealing with a Freight Forwarder rather than a NVOCC I would be happy to learn.

    • The difference between a NVOCC and Freight Forwarder is as I have explained in the post.. The perception in the market/trade that there is no difference between these two is due to some overlapping functions such as issuance of bill of lading, booking/securing space etc which both these entities do.. And yes you are right in the case of NVOCC term not being used in certain trades as they either don’t exist or only perform some of the functions similar to that of the FF (like space booking etc)..

      In response to your second question “circumstances where a shipper will be worse of dealing with a Freight Forwarder rather than a NVOCC”, this cannot be quantified because in general terms a customer (whether exporter or importer) “appoints” a freight forwarder to act as their agent whereas they “employ the services” of a NVOCC as a carrier same as they would a shipping line..

      What is your contention/view on this question about difference between NVOCC and Freight Forwarder..?? Is there a difference or no difference..??

  4. I recently joined as a junior marketing executive on a shipping line,NVOCC Operating company
    am still at my training process
    could you help me what are the main things to consider and study in my play of role?
    it would be really help-full
    THANKS IN ADVANCE

  5. I am interested as to why freight forwarders create separate NVOCC entities. K&N has Blue Anchor, Danzas when it existed had Danmar Lines, etc. Why create a different entity that can confuse customers?

  6. supply chain solutions Really interesting information. Thanks for sharing. It provides an easy explanation of difference between freight forwarder and clearing agent. Clearing agent has to deal with all legal documents of his client whereas a freight forwarder is responsible for storing and forwarding the cargoes securely.

  7. Hi Hariesh
    Not about this topic , I have a different requirement.
    do we have any sea containers that are explosion proof for moving highly hazardous chemicals , battries etc.,. If so are you aware of any liners

    Regards
    Suresh

  8. Dear Sir,

    We are Custom Clearing agent in Delhi & wish to start our Freight forwarding. Most of customers are importers. Kindly let us know how we can start Freight forwarding. What type of licence we may required.

  9. I would like to start a Streamer Agent business (Moving containers from one country to another in India/Chennai). Will there be any handy feasibility project report available which contains all the details for a start-up in this field ? Please suggest me a few ! it is most urgent !!

  10. I need to understand when is a container considered as Over weight ? OW and will incur insto additional surcharge beacuse of this. As per standars info there are limits / max weight declare per each box type / size but I noticed for example that a 20GE hast a limit of 30,000 pound but carriers charged me for overweight over 27Tons. why is that and what are those limits for OVER weight?

  11. I will be starting as a Customer Service Representative for a local freight consolidator. I would like to learn as much as I can about the shipping industry. I’m very eager to learn.

  12. One of the readers of this blog Jeff pointed out that there is also a major legal difference between the two being :

    1. A freight forwarder acts as an agent of the shipper therefore represents the interests of the cargo itself.
    2. An NVOCC is a special legal entity that can issue bills of lading and acts like a shipping company – they will usually rent slots from a shipping line for which they become responsible for selling space and therefore would act on the other side of the table to a Freight forwarder.
    • This is not correct. When I worked for a major shipping line the NVOCC’s did not rent space, they just negotiated with large volume commitments (just like large BCO’s) which were rarely enforced. And there was even many examples that the NVOCC branch of a company did not do the negotiaton but left it for the Freight Forwarder branch, e.g. Kuehne + Nagel negotiated for Blue Anchor, etc.

    • Hi Hareish, My comment about renting space / slots is referring to the text you say that Jeff has written to you. Hope clarifies.

    • Ah, ok, yes there are some NVOCCs who actually own and/or lease containers and they have fixed slot space arrangements with some of the carriers.. This is what Jeff was alluding to in his comment.. Trust this clarifies..

  13. Can anyone tell me if L/C ask for Bill of Lading and exporter presents House bill of lading for negotiation is discrepancy?

    • Hi Bhubal, a lot of banks allow House Bill of Lading for negotiation.. It depends on the bank and the beneficiary if they will allow House bill to be used for negotiations.. Some beneficiaries specify in the L/C that HBL not allowed..

  14. I have a well establish clearing agency and keen on persuing the freight forwarding side of my business. Please advise which institute/s and governing body I need to contact to get started.

  15. In order to start a freight forwarding business you must either have, or appoint an officer who has, 3 years of OTI (Ocean Transportation Intermediary) experience. International Car Shipping is much different than Domestic Auto Shipping. There are less regulations when vehicle shipping within the United States as opposed to international auto shipping.

  16. i would like to start a freight forwarding business, is NVOCC a requirement for me to operate and how do I get this NVOCC.

    • Hi Brandyn, each bill of lading is subject to the terms and conditions under which it is registered or governed and this will be decided by the carrier that is issuing the bill of lading..

  17. “…cases, an NVOCC operator might request for a telex release from the line so that they can issue their house bill of…”

    Sounds like someone is shipping with Maersk. In its most simpliest explanation it is basic an electronic message releaseing the cargo (like an E-mail)

  18. I’m doing some research and wanted to know what are the technology enablers to NVOCC businesses. Not just in terms of freight forwarding application suites but also in terms of hand held devices, RFID, etc. Is the industry in the developed countried truly technology-driven?

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